The talking heads are at it again—the majority, at least, seem to be genuinely puzzled as to why mainstream equities markets keep selling off.
Fundamentals are strong, they say. Corporate profits are up. The US economy is doing fine. Consumer confidence is high. Unemployment is low. Clearly, Mr. Market has lost his marbles!
That this is the worst December for stocks since 1931 doesn’t matter; 95% of the S&P 500 closed in the red yesterday, so stocks are “cheap”. The correction is overdone, so it’s time to buy-buy-buy!!
It’s amazing that any investor with experience can look at a Dow above 20,000 and say stocks are cheap. The psychology of denial is particularly striking, when pundits mention things like the one-off stimulus from Trump’s tax cuts, then go on to complain about investors being crazy for selling when they should obviously be buying.
It’s as though they don’t remember the old adage about markets being able to remain irrational longer than investors can remain solvent. (That’s something metals investors never forget.)
The thing that impresses me the most is the way some of the same talking heads speak so wisely about how Bitcoin was a “classic bubble” last year. They talk about the Bitcoin prophets being in denial after the bubble burst. They criticize others for letting a narrative they want to believe blind them to the facts of reality. And yet they don’t see themselves doing the same thing as regards stocks in general today.
Never mind the hypocrisy of harping on the speck in one’s brother’s eye while ignoring the plank in one’s own—the real danger here is pointing investors in the wrong direction.
Essential fact: Wall Street had been in a record bull for nine years.
How then can anyone be surprised to see it correct, let alone say investors are wrong for taking cash off the table while they can?
To be clear, I am not (yet) saying that the next 2008 is upon us. I’m saying that it’s dangerous and irresponsible to tell investors that the mainstream equities party can go on forever, and that they should be “buying the dip” now. That’s because no one really knows what the consequences of all the crazy things central banks have done since the crash of 2008 will be.
What looks like a healthy correction now could be just that. It could also be the beginning of a protracted bear as the US economy comes off the sugar high of the tax cuts. And it could be the beginning of The Great Unraveling of decades of political intervention in the economy, leading to what my friend Doug Casey calls The Greater Depression.
I don’t know which it will be. I don’t think anyone does. But it makes me wonder what planet these people are from when they tell investors to pay no attention to the cracks spreading through the thin ice under their feet, and to keep skating on.